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Europe's leaders agreed in Brussels to mobilise the reserves of the 17 national banks of the eurozone system to finance the IMF, hoping that this will then lever fresh money from China, Japan, and other global powers.
Andreas Dombret, a Bundesbank board member, said Germany's central bank cannot take part in any form of covert funding for EMU states in trouble through the bank-door of the IMF, saying further money can be used only to support the normal operations of the Fund.
"The money cannot migrate into some sort of special pot that is used exclusively for Europe. That would be a clear breach of the prohibition of monetary financing of states. The German Bundesbank has explicitly ruled this out," he told the Handelsblatt newspaper.
Mr Dombret said the Bundesbank's share of any such IMF package would be €45bn and is "inherently risky". It would require an indemnity of some kind from the German parliament. This in turn would breach the €211bn ceiling already set by the Bundestag on EU bail-outs.
Mario Draghi, the head of the European Central Bank (ECB), raised similar concerns last week, warning that the ECB is not willing to use the IMF as a conduit for covert sovereign rescues in Europe.
"One cannot channel money in a way to circumvent the treaty provisions. If the IMF were to use this money to buy exclusively European bonds, we think is not compatible with the treaty," Mr Draghi said.
Adding to complications in Germany, Bundestag president Norbert Lammert has demanded that the summit package should undergo scrutiny by Germany's constitutional court, warning that new powers for European commissars to intrude in national budgets might conflict with German fiscal sovereignty.
The summit item on the role of the IMF appears to have been slipped into the conclusions without full preparation and is meeting blistering criticism from IMF experts, as well as hostility in Washington.
US President Barack Obama said: "Europe is wealthy enough that there is no reason why they can't solve this problem. It's not as if we are talking about some impoverished country that doesn't have any resources."
The US said it will not contribute to the EU package. A group of Republicans on Capitol Hill want to go further and slash America's existing funding for the IMF.
Mario Bleijer, former head of Argentina's central bank and an IMF expert, said Europe should not try to shift liabilities onto the rest of the world.
"The proposal to use the IMF as a conduit for ECB resources – thereby circumventing restrictions imposed by EU treaties – while providing the ECB with preferred-creditor status, would exacerbate the Fund's exposure to risky borrowers. This arrangement could be seen as an unwarranted abuse of Fund seniority that unfairly frees the ECB from the need to impose its own conditionality on one of its members," Mr Bleijer said.
Olivier Blanchard, the IMF's chief economist, said Europe's plan to commit €200bn should make a "big difference", helping to persuade the rest of the world to step in.
"What happened last week is important: it's part of the solution, but it's not the solution," he said.
Bundesbank rejects Europe's IMF funding ruse - Telegraph
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